Layman’s Terms: North Texas housing market hit by a virus worse than COVID-19

Sales in Denton County declined 22% in May, but pending home sales rose 13%. The median price of a Denton County home was basically flat at $322,000, with the average prices also flat at $368,649. The supply of homes in Denton County plunged 31% last month to only 2.4 months of supply. The median and average price per square foot of a Denton County home hit new records of $145 and $146, respectively.

North Texas saw a 26% decline in home sales in May. Steps taken to open the economy back up in May helped to push pending home sales 10% higher. The supply of homes in the DFW area fell 23% with the recent jump in activity. The Federal Reserve’s asset inflation virus has helped to shrink inventory in the DFW area down to just 2.7 months of supply.

With their record-breaking liquidity injection into the markets, the Federal Reserve continues to distort the housing market. By preventing the market from clearing, the Fed has encouraged potential home sellers to keep their properties off the market. New homebuilders have seized the opportunity to offload a good chunk of their inflated inventory at record high prices. With the overall inventory shortage, new home sales went on a tear the past few months. New construction inventory plummeted 28% in May falling to just 3.3 months of supply. That’s the lowest supply of new homes for the DFW area since 2008.

The Federal Reserve is taking the “drive till you qualify” slogan to epic new heights. Millennials looking for affordable homes in the North Texas housing market are finding the road to home ownership more challenging as asset price inflation eats away at real purchasing power. The overall price of a new Denton home fell 13% in May, yet the average price per square foot hit a new record high of $139 per square foot. This was a perfect example of the stagflation the Federal Reserve is creating in the housing market.

The stagflation component is only the half of it. With the pandemic bailouts, the Fed’s misinformation and PR campaign has also ramped up to a new level of insanity. In early June, we learned that 44 million Americans filed for unemployment during the last three months, with another 1.5 million added to the total in just the latest week. Incredibly, during a recent post-meeting press conference last week, Federal Reserve Chair Jerome Powell had the audacity to suggest that employment remains a primary focal point of Fed policies. Powell also denied that the Fed’s bubble blowing policies were contributing to income and wealth inequality.

Treasury Secretary Steve Mnuchin, former CEO of the foreclosure machine known as OneWest Bank, wasn’t to be outdone with the misinformation about the recent pandemic bailouts. While refusing to disclose the names of corporations receiving roughly $500 billion in bailout loans, Mnuchin told a senate committee that such information was “proprietary” and “confidential.” Apparently Mnuchin isn’t a big fan of transparency.

There’s a direct link between the record-high price per square foot people are paying for Denton area homes and the Depression-level unemployment levels we’ve seen since the pandemic hit the U.S. That link is our central bank, the Federal Reserve. The Federal Reserve has devolved into a virus profoundly worse than COVID-19. With small businesses closing across the country and millions of people unemployed, the Fed’s response was to throw roughly $3 trillion at the markets to bail out banks, leveraged speculators, REITs, cruise lines owned by foreign companies and airlines that serially mismanaged their businesses for personal gain.

The public propaganda of the “wealth effect” is just that, a carefully crafted mirage that Federal Reserve officials such as Powell use as a convenient excuse to protect the privileged class of capital and asset holders. This is how we had the insane backdrop of the markets going green for the year at one point while more than 20 million Americans continued to receive unemployment benefits. It’s almost as if the Fed has severed the last remaining tether between the real economy and the stock market.

It is no secret why Congress has so far refused to call the Fed to task for contributing to the spiraling income and wealth inequality. Many members of Congress are also part of that elite club of asset holders, so they are perfectly comfortable watching Rome burn if the Federal Reserve is going to bail them out, too.

In one of Powell’s latest Fed press conferences, he reiterated that the Fed’s policy goals have been centered on restoring financial market function. For Powell, who happens to have a net worth of roughly $100 million, the “system” seems to be working just fine.

By distorting actual markets, the Fed continues to pour gasoline onto a burning building. The bottled-up demand in the housing market we are experiencing this summer will likely fade away once the CARES Act benefits come to an end. The Fed can flood the financial system with liquidity to bail out well-connected constituents and criminal felon banks, but it can’t print jobs.

The Fed’s balance sheet has ballooned to over $7.16 trillion, and the debts will continue to grow because the Fed has no plausible exit strategy. The declining marginal revenue product of debt has consequences for both the economy and the housing market, but Federal Reserve officials apparently don’t care as long as Wall Street is flush with cash.

If you are in the market to buy or sell a home, it is sometimes difficult to see the longer arc of the economic cycle. It’s even more challenging when your central bank is actively working against you, hiding critical pricing signals necessary for a healthy, functioning market.

Be safe out there.